Political Connections As a Barrier to Entrepreneurship

Experimental Evidence from Tunisia and Senegal

Robert Kubinec
rmk7@nyu.edu

New York University Abu Dhabi

Abhit Bhandari

Temple University

Sekou Jabateh

New York University Abu Dhabi

Hamza Mighri

International Monetary Fund

June 16, 2023

Introduction

Research Question

  • Considerable research has shown how political connections shape the performance of companies, especially in developing countries with weak state institutions (Earle et al., n.d.; Fisman 2001; Haber, Razo, and Maurer 2003).

  • Compared to simply considering corruption, political connections encompasses a range of both formal or informal relationships to government officials (Faccio 2010).

  • To what extent are political connections a barrier to entrepreneurship, and can connections be exogenously increased and thus result in more egalitarian entrepreneurship?

Multi-Stage Research Design

  • Stage 1: Recruit quasi-representative sample of young people (ages 18 - 30) via Facebook ads.

  • Respondents complete initial questionnaire in which they rank their career choices for a small mobile credit (~$1).

  • Respondents invited to second round if they 1) ranked entrepreneurship as #1 or #2 or 2) if they ranked government #1 or #2 career option.

  • They also needed to be attending university or have a university degree.

  • If they completed these steps, they were invited to a second survey with a larger mobile credit (~$10 USD).

Multi-Stage Research Design

  • Second survey contains a wide array of questions about demographics, political connections, family background, and a conjoint experiment.

  • Conjoint experiment compares two hypothetical entrepreneurs and includes connections (father’s profession, membership in ruling party) as attributes.

  • Each respondent completes 4 tasks.

Data

  • In total, we collected 609 responses in Senegal and 501 in Tunisia.

  • Total N for conjoint is 8,156.

  • We have contact information (email, mobile) which can be used for future follow-up surveys.

Multi-Stage Research Design

  • Stage 2: Run in-person field experiment by inviting random sample of survey respondents to entrepreneurship training.

    • Respondents given incentive to cover travel costs.

    • We hired entrepreneurs to design and run workshops in both Tunisia and Senegal.

    • We used pre-test and post-test surveys to measure political connections exactly.

      • Government officials from business development agencies invited to present.

  • In total 83 participants; all others are controls.

Descriptives

Types of Political Connections

Do Connections Matter for Entrepreneurship?

Conjoint Results

Field Experiment Results

ITT of Treatment on Entrepreneurship Intentions

ITT Mediated by Exogenous Increase in Connections

Mediator Effect 5% Median 95%
General Direct 0.066 0.097 0.125
Parliamentary Direct 0.081 0.109 0.136
General Indirect 0.002 0.004 0.009
Parliamentary Indirect 0.002 0.004 0.008
General Proportion Mediated 0.093 0.157 0.230
Parliamentary Proportion Mediated 0.069 0.118 0.170

Mechanism: Interactions with Officials

Did We Convince Them Connections Don’t Matter?

Conclusion

  • It does seem that we can manipulate perceived connections through meetings with government officials.

  • Increasing connections does seem to contribute to improved odds of perceived success in entrepreneurship.

  • Long-term effects unclear (how long do political connections last?).

Examining Political Connection Relationships

Connections and Income

Connections and Entrepreneurship

Connections and Public Sector Interest

Qualitative Analysis of Connections

  • We also asked people to describe the connections using open-ended text responses:

    • Our relationship isn’t close at all because he thinks I need something from him when I’m not in I only think about my future so I don’t count on him
    • We see each other no more than twice a year.
    • He’s my namesake he was a former Minister of State
    • None strangely, he doesn’t even know me but I know he is a distant family relation
    • Gives a lot of importance to me, a welcoming person, keep your head up
    • Professional relationship in the context of finding a job
    • He’s my father’s uncle. He was political adviser to the President of the Republic
    • He’s like a father to me because he’s a friend of my uncle
    • I am a member in a political party currently (pdl)

References

Earle, John S., Scott Gehlbach, Anton Shirikov, and Solomiya Shpak. n.d. “Preventing Predation: Oligarchs, Obfuscation, and Political Connections.” https://doi.org/10.2139/ssrn.3501060.
Faccio, Mara. 2010. “Differences Between Politically Connected and Nonconnected Firms: A Cross-Country Analysis.” Financial Management 39 (3): 905–27.
Fisman, Raymond. 2001. “Estimating the Value of Political Connections.” The American Economic Review 91 (4): 1095–1102.
Haber, Stephen, Armando Razo, and Noel Maurer. 2003. The Politics of Property Rights: Political Instability, Credible Commitments, and Economic Growth in Mexico, 1876-1929. Cambridge University Press.